2010 (7) TMI 176 - AT - Service Tax

Scientific or Technical Consultancy Services - 65(105)(za) - service provider and client relationship - Held that , in the implementation of the Governmental schemes, the assessee as implementing agency did not render any taxable service to the government. The department seems to be considering the Governments to be clients of APITCO. The question now is whether there was service provider-client relationship between the assessee and the governments. Here, again, the nature of the amounts paid by the governments to the assessee is decisive. A client must not only pay the expenses of the service but also the consideration or reward for the service to the service provider. Admittedly, in the present case, there was no payment, by any government to the assessee, of any amount in excess of what is called grant-in-aid . Thus any service provider-client relationship between the assessee and the governments is ruled out. Many of the activities in question, such as micro-enterprises development, training programmes, project planning, infrastructure planning etc., are apparently in the nature of projects involving application of social science principles. The revenue has not shown that any techniques or principles of pure and applied sciences were applied in the implementation of the governmental schemes by the assessee.

Issues Involved:
1. Demand of service tax for the period 2001-2002 to 2005-2006.
2. Levy of interest on tax under Section 75 of the Finance Act 1994.
3. Imposition of penalty under Section 78 of the Finance Act 1994.
4. Demand of service tax for the period 2006-2007.
5. Demand of service tax for the period 2007-2008.
6. Enhancement of penalty under Section 76 of the Finance Act 1994.
7. Applicability of extended period of limitation for recovery of service tax.

Detailed Analysis:

1. Demand of Service Tax for the Period 2001-2002 to 2005-2006:
The assessee challenged the demand of service tax amounting to over Rs 1.9 crores for the period 2001-2002 to 2005-2006, confirmed under the proviso to sub-section 1 of Section 73 of the Finance Act 1994. The department's view was that the grants-in-aid received from the government for implementing welfare schemes constituted "scientific or technical consultancy" services under Section 65(105)(za) of the Finance Act 1994. However, the Tribunal held that the assessee, as an implementing agency, did not render any taxable service to the government, and there was no service provider-client relationship. The grants-in-aid were utilized entirely for implementing welfare schemes and did not constitute consideration for any service rendered.

2. Levy of Interest on Tax Under Section 75 of the Finance Act 1994:
The assessee also challenged the proposal to levy interest on tax under Section 75 of the Act. Since the Tribunal concluded that no service tax was leviable on the grants-in-aid received, the question of levying interest on such tax did not arise.

3. Imposition of Penalty Under Section 78 of the Finance Act 1994:
The Tribunal addressed the imposition of a penalty equal to the tax under Section 78 of the Act. Given the decision that no service tax was due, the penalty imposed under this section was also set aside.

4. Demand of Service Tax for the Period 2006-2007:
The assessee challenged another demand of service tax amounting to over Rs 95,00,000 for the period 2006-2007. The Tribunal's reasoning for this period was consistent with its earlier findings that no service tax was leviable on the grants-in-aid received from the government for implementing welfare schemes.

5. Demand of Service Tax for the Period 2007-2008:
The assessee's appeal against the demand of service tax of over Rs 1,00,00,000 for the period 2007-2008 followed the same rationale. The Tribunal found that no taxable service was rendered, and thus no service tax was due.

6. Enhancement of Penalty Under Section 76 of the Finance Act 1994:
The revenue's appeal sought to enhance the penalty on the assessee under Section 76 of the Act. The Tribunal noted that the Commissioner failed to apply the amended provisions of Section 76, which provided for a higher penalty. However, since the primary demand for service tax was not upheld, the question of enhancing the penalty did not arise.

7. Applicability of Extended Period of Limitation for Recovery of Service Tax:
The show-cause notice for the period 2001-2002 to 2005-2006 invoked the extended period of limitation on the ground of suppression of facts. The Tribunal found that the assessee had furnished all relevant facts to the department as early as January 2004 and reiterated these facts in 2006. Therefore, the allegation of suppression was not tenable, and the extended period of limitation could not be invoked.

Conclusion:
The Tribunal allowed both appeals filed by the assessee and dismissed the revenue's appeal. The Tribunal held that no service tax was leviable on the grants-in-aid received by the assessee from the governments for implementing welfare schemes, and there was no service provider-client relationship. Consequently, the demands for service tax, interest, and penalties were set aside.

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